Always Obtain A Property Survey

Question : We are refinancing and our lender is requiring a survey. We paid for one five years ago when we bought our house, so we don't understand this requirement? Is it necessary?

Answer : Yes and no. The lender needs a survey, but if you have not made any changes to the outside of your property, your lender should be willing to take a sworn affidavit from you indicating no changes and no improvements since the first survey. The original survey should be attached to that document.

What is a survey? It is important to distinguish between a survey and an appraisal -- both of which are generally charged to the buyer. An appraisal assists the mortgage lender in assessing the value of the house so as to determine whether a mortgage should be made and in what amount. Generally, the appraisal will analyze the condition of the house, its location, structural soundness and comparable sales in the area.

A survey, on the other hand, goes to the question of marketability. The surveyor determines whether the house is within the property borders, whether there are any encroachments on the property by neighbors and the extent to which any easements on the property may affect legal title.

Up until the mid 1980's, mortgage lenders did not require a survey. But this has changed. Title companies, when issuing a title insurance policy, will issue an exception to title unless a survey has been obtained. Since Lenders insist on obtaining a clear "lender's" title insurance policy covering the face value of the mortgage, it becomes necessary to obtain a survey to satisfy the lender's requirements.

Every buyer should obtain a survey, even if you are paying all cash. You need to know where your property lines are, and whether there are any building restrictions affecting your right to add a porch or a fence. You want to make sure that your fence does not encroach on the next door neighbor or vice versa.

Here are some suggestions involving the survey process.

First, survey prices vary considerably. I've seen them as low as $200 and as high as $300, for the same single-family house. Ask your settlement attorney for an estimate. If it seems too high, arrange for your own survey and make sure a copy of the survey gets to your lender well in advance of settlement. It must be done by a qualified surveyor, licensed in the state where your property is located. And your lender must approve the surveyor in advance.

Next, ask your sellers who did their survey. Most lenders will not honor a survey if it is more than six months old, but you should ask the prior surveyor whether the old survey can be updated and whether this will save you some money. Some of the more reputable surveyors are happy to get your business and will give you a break in the price.

You should also go to the government surveyor in the land records office where your property is located. They are quite helpful and may be able to assist you with boundary questions, easement issues and such. They will not, however, provide you legal advice.

If you are buying a condominium unit, you will not have to obtain -- or pay for -- a separate survey of your unit. That survey has already been done as part of the plats and plans which were recorded with the condominium documents. You should, of course, carefully review all of the condominium documents before you decide to go forward with the transaction.

It should be noted that the typical survey which most purchasers obtain when they go to closing is called a "house location" survey. Title insurance generally will exclude from coverage "encroachments, overlaps, boundary line disputes and any other matters which would be disclosed by an accurate survey and inspection of the premises."

The title insurance industry takes the position that a "house location" survey is not such an "accurate survey", and thus will reject many claims regarding boundary disputes.

To obtain full title insurance coverage, the purchaser should obtain what is known as an "ALTA (American Land Title Association) Survey". This is a very detailed, comprehensive survey, which will cost considerably more than the house location survey.

To be absolutely sure of what property you are purchasing, you might want to consider obtaining this ALTA Survey. However, most residential purchasers would rather not spend that additional money, and will take a chance that the house location survey will adequately protect them.

Finally, keep in mind that most surveys will not include staking your property corners. If you want stakes posted, it will cost you additional dollars. You should make the necessary arrangements for stakes at the time you – or your title attorney -- orders the survey.

When you go to settlement, you should ask the settlement attorney to review the survey with you, and to discuss any potential issues which that survey may raise. Are the fences encroaching on your neighbor's property? Is the driveway owned by you – or it is a shared driveway? Who owns any trees which are on the property? Once you purchase the property, it may be too late to raise any boundary-related issues.

And don't forget to get a copy of the survey from your closing attorney before you leave the settlement table.